Will Health-Care Innovation Survive Obamacare?

I have the sense that many defenders of an even-more-fully-government-run health care system have a hard time taking this question seriously. But they should. It's just a fact that much of the world's medical innovation comes from the U.S. This goes a good way toward explaining with why survival rates for many potentially mortal health problems are highest in the U.S., and also partly explains why U.S. costs are so high. Indeed, that a certain strata of Americans spend so much, often on stuff that makes no difference, also partly explains the high U.S. level of innovation. Profligate U.S. spending on state-of-the-art treatments acts as a subsidy to the health care systems of other countries, who get to free-ride off American innovation and (often “wasteful”) market experimentation. As Megan McArdle put it:

At the highest macro level, life expectancy, Europe generally outperforms us. But it's not clear how much of that is health care, and how much things like our murder rate, and our famously sedentary lifestyles. When you drill down into many diseases, we outperform them. And many argue that we outperform them on hard-to-measure “lifestyle” issues: how fast your torn ACL gets repaired, how quickly (or whether) you get a hip replacement, etc. Such quality of life issues are nearly impossible to measure, though this hasn't stopped many people from trying. But I don't really trust the figures they generate.

Europe gets a great deal out of all of this. We figure out what works, then they adopt it. But we get a great deal too–we get earlier access to controversial treatments, and our future generations get all the treatments we've discovered so far.

Megan mentions Virginia Postrel's terrific Atlantic piece about her ordeal with breast cancer and the expensive but effective drug Herceptin, which may well have saved her life. And which New Zealand's government health system wouldn't pay for initially…

Looking at the crazy-quilt American system, you might imagine that someone somewhere has figured out how to deliver the best possible health care to everyone, at no charge to patients and minimal cost to the insurer or the public treasury. But nobody has. In a public system, trade-offs don’t go away; if anything, they get harder.

The good thing about a decentralized, largely private system like ours is that health care constantly gets weighed against everything else in the economy. No single authority has to decide whether 15 percent or 20 percent or 25 percent is the “right” amount of GDP to spend on health care, just as no single authority has to decide how much to spend on food or clothing or entertainment. Different individuals and organizations can make different trade-offs. Centralized systems, by contrast, have one health budget. This treatment gets funded, and that one doesn’t.

If I lived in New Zealand, I wouldn’t be dead, just a lot poorer. But if every place were like New Zealand, far fewer complex new drugs would get developed in the first place. And my odds of survival would be much, much lower.

The biggest challenge for advocates of less hindered market competition in health care is that it is so hard to see what is lost to excessive regulation and government rationing. Glenn Reynolds, writing in the Washington Examiner, does a terrific job illustrating what could be lost to a system of government rationing. For example, his family:

[M]y wife, a longtime vegetarian and marathon runner, had a freak heart attack at the age of 37.

It wasn't from too many Big Macs. After some rough patches, she's now doing well, thanks to an obscure and expensive anti-arrhythmic drug called Tikosyn, and an implantable cardioverter/defibrillator. Not too long ago, she'd have been largely bedridden. These medical innovations made the difference between the life of a near-invalid and a life that's close to normal.

My mother had a hip replacement. Her hip didn't break – she basically wore it out with exercise. When the pain got too bad, she got it replaced, and now she's moving around like before, only painlessly. Not too long ago, she would have been chairbound.

My father had prostate cancer; his doctor suggested waiting but on biopsy it turned out to be pretty aggressive. It was treated with radioactive “seed” implants. He's now been cancer-free for several years, without the side effects of earlier treatments — or, worse, of cancer.

My daughter had endoscopic sinus surgery this spring. She had been sickly and listless, complaining of constant migraine headaches, missing a lot of school, and generally looking more like a zombie than a teenager. Several doctors dismissed her problems, or prescribed antibiotics that didn't help much, until we found one who took the extra step.

A head CT scan done on a fancy new in-office machine showed a nasty festering infection, the surgeon cleaned it out, and now she's like a normal kid again. Before laparoscopy, her condition would probably have remained untreated, and she would have been another “sickly” kid. Better to be well.

The normal critique of socialized medicine is to point out that people have to wait a long time for these kinds of treatments in places like Britain. And that's certainly a valid critique. I'm sure my mom and daughter would still be waiting for their treatments, while my father and wife would probably be dead.

The key point, though, is that these treatments didn't just come out out of the blue. They were developed by drug companies and device makers who thought they had a good market for things that would make people feel better.

But under a national healthcare plan, the “market” will consist of whatever the bureaucrats are willing to buy.

I plan to write something longer about why this is such a tough issue to crystallize and communicate. My hunch is that our thinking about any issue like this, where enormous humanitarian benefits are side-effects of systems driven largely by self-interest, is badly distorted by the Knobe Effect.